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China, eurozone debt weighs on rand

Johannesburg - The rand traded softer against the dollar on Tuesday, breaching the R8.00 level once more with traders pointing to signs of economic stress in China and other Asian markets that import large quantities of African raw materials.

Government bonds were also under pressure, weighed down by renewed fears about the debt burden of some European countries.

The rand was down 0.92% at R8.01 to the dollar by 06:50 GMT compared with Monday's close at R7.9370.

"The rand is going to remain under a bit of pressure for the majority of the day. The market has taken into account weaker numbers out of China this morning," said Paul Chakaduka, a trader at Global Trader.

China's factory activity in October was its slowest since February 2009.

Expectations of more weak data from other Asian countries and speculation about possible currency devaluations to boost exports could also weaken the rand.

"It's really pointless for them being able to import all that raw material from countries like South Africa and failing to export the finished products. I think in the short term levels around R8.00-R8.20 against the dollar should be a target to look out for," Chakaduka said.

Renewed concerns over the eurozone debt crisis despite bailout moves by the European Union are also not helping the currency.

"Whilst there certainly has been some relief expressed at the actions taken by EU officials, it is clear that it has not been sustained and that all is still not well in the eurozone," Tradition Analytics said.

"For now, sentiment has turned sour once more and risk assets are once again under pressure."

Government bonds also struggled in early Tuesday trade, and the yield on the benchmark 2015 paper rose 4.5 basis points to 6.64%. The yield for the equally heavily traded 2026 bond added four basis points to 8.35%.

On the upside, bonds remain supported by expectations that local interest rates will remain at 30-year lows for some time, with the off-chance of at least one more cut as the Reserve Bank tries to prop up domestic output.

The October purchasing managers' index due out at 09:00 GMT is likely to show manufacturing, which accounts for about 15% of GDP, is still performing below par.

Unemployment data at 09:30 GMT is also expected to indicate the economy is not creating enough jobs to make a significant dent in unemployment, currently close to 26%. 

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